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The Tip.It Times

24th April 2011Issue 12999gp

Massive Economic Pressures Afoot

Written by sees_all1 and edited by Lorexvath

If you've been trading in RuneScape lately, you will have noticed something. Prices on all raw materials are crashing, and it seems everything except for rares has dropped in price. The cause of these massive economic pressures is free trade, botting, and real world trading.

In the past, many players were griping about inflation. Inflation, in an economic sense, is a change in the value of currency over time. Usually the word inflation connotes a decrease in the value of currency, and deflation means an increase in the value of currency. In a broader economic sense inflation encompasses deflation, just as in physics acceleration encompasses deceleration. All these words mean very little as stand-alone definitions, so let us look at four examples.

In a simple economy, say RuneScape just after it left Andrew Gower's mind, there is one player, 10 coins, and an iron scimitar. The player kills a goblin, it drops 10 coins. Now in the entire economy there are 20 coins, and an iron scimitar. Inflation has occurred; one gp is worth half of what it was worth before the goblin died. Say the goblin drops an iron scimitar instead of those 10 coins. There are now 10 coins and two iron scimitars in the economy. Deflation has occurred; one gp is now worth twice as much as it was. Say the player banks their coins but instead of killing the goblin, they die and lose their scimitar; it doesn't get picked up. Now there are 10 coins and no items, inflation occurred. Or the player banks their scimitar but doesn't bank their coins, and loses those instead. Deflation occurs.

In an economy as complex as the current RuneScape has, such over simplifications are rather ridiculous - I'd like one idea to stick. Inflation and deflation are the symptoms of events that occurred, not the causes. In the example given, ten coins entering into the economy caused all the coins in the economy to be worth less, one iron scimitar entering the economy caused all the coins to be worth more.

So, what has been going on in the recent past and present game?

Before free trade was introduced, there were PVP and Bounty Hunter Worlds. Weapons and armor left the economy, replaced by items from drop tables that included statuettes: pure gp. Trade was limited, and there was no easy way to transfer massive sums of gp between accounts. There were fewer gold sellers, which meant that most items in the economy came from the players themselves, there was less supply overall. Items leaving the game, and gp entering the game caused one gp to be worth less than it was before.

Fast forward to right now and it’s no mystery that prices of raw materials are falling. One GP goes much further than before. A basic law of economics is that an increase in supply causes a decrease in price levels. A well known increase in supply comes from all the bots and real world traders. These players and their programs increase supply of materials. Their accounts are workhorses, they run continuously, hour after hour, day after day, providing materials that normal players won't.

This is all very well understood, but I'd like to point out something that isn't so obvious. Previously in RuneScape economics, the rule of thumb was that GP only entered the game, it never left. This model led to continuous inflation, slowed only by players quitting, getting banned, or training skills like construction.

Real world traders cause deflation not only because they increase supply of raw materials, but also because they hoard GP. They sell raw materials, but store GP. They wait for other players to buy their GP with real world currencies. This is in contrast to a normal player who earns GP to spend it on something else. Real World Traders hoard GP. The only way for GP to return to the economy from Real World Traders is that someone else has to buy it. I won't comment on the frequency of this event, but I will say that the flow of GP must be unbalanced. It is conceivable that for every GP earned by a real world trader, a few more are hoarded as stock, and still more GP are lost when their accounts are banned.

How does one protect from deflation?

Quite frankly, the best hedge against deflation is by keeping GP. If the wealth in your bank is mostly GP, you'll find that you'll be able to buy more as time goes on. If you're an active player in RuneScape, you'll find that your daily activities provide fewer and fewer GP per hour. This doesn't matter, as your fewer and fewer GP will buy relatively the same amount. I expect that deflation in RuneScape, just as inflation from PVP statuettes, will be self-limiting. As the prices of items fall, they'll reach their artificial floors of their alchemy prices. This should keep the amount of GP entering and leaving the game in check, in a self-stabilizing balance.

In my opinion, inflation from the past and deflation from the present are neither good nor bad, they're indifferent. They're symptoms of pressures from underlying economic phenomena, letting us know that the mechanics of free trade and other illicit events are still at work. I would venture to say that those engaged in real world trading are affecting us more than we'd like to admit, putting a strain on RuneScape's economy.

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